Family Offices In Singapore: An Update & Recent Trends

Singapore has long established itself as a hub for family offices. With an increasing demand for family offices to be set up worldwide, the jurisdiction continues to stand out as a preferred destination, offering the ideal environment and support for families managing their wealth and assets[2]. Singapore’s competitiveness as a global wealth management hub has been significantly enhanced through various benefits, including tax incentives in relation to trading gains (i.e. the S13O and S13U schemes[3]) which accommodate different types of family office structures. At the end of 2022, the number of single family offices that were awarded tax incentives by MAS increased to 1,100, up from 700 in 2021[4].

Although there has been no official count or comprehensive breakdown of data in relation to family offices[5] in Singapore, it was stated in MAS’ 2021 Asset Management Survey that SFOs that have applied for and been granted tax incentives by MAS managed about S$ 90 billion of assets[6].

In recent years, Singapore’s family office regime has undergone significant changes to meet the evolving needs of wealthy families. This evolution has enabled family offices to customise their operations, implement diverse investment strategies, and serve the unique requirements of these affluent families.

That said, it is noteworthy that recent changes in relation to family offices appear to have imposed stricter conditions where incentives are concerned. This has led many to surmise that Singapore now wishes to court quality instead of quantity when attracting wealthy families and we have seen this in a few recent examples.

The Global Investor Programme (GIP) which is administered by the Singapore Economic Development Board (EDB), permits global investors to apply for Singapore Permanent Resident status (PR) if they fulfil the conditions. In the latest round of changes announced in March 2023, family office principals under the GIP Programme are now required to establish a Singapore-based SFO with assets under management (AUM) of at least S$200 million, of which at least S$50 million must be transferred into Singapore and must be deployed in very specific investments, namely companies listed on MAS licensed exchanges; qualifying debt securities; funds distributed by Singapore-licensed/registered managers; or private equity injection into non-listed Singapore-based businesses. Previously, the conditions did not impose such specific investment requirements.

In terms of local employment, for an applicant to renew their PR status for a period of five years, they must now hire at least 10 employees including a minimum of five incremental family office professionals, of which at least three must be Singaporean citizens by the fifth year of their PR status. The previous conditions required them to hire only five Singapore Citizens and three professionals[7].

It is quite clear that with such revised conditions, the expectation of GIP investors is for them to deploy more funds into the local financial system, and also to generate indirect employment in the form of good quality jobs for locals.

As recently as July 2023, with the aim to drive these tax incentives towards bettering the local community and shepherding SFOs to public causes, MAS implemented stricter conditions for family offices seeking to establish their operations in Singapore under the S13O and S13U schemes. These conditions apply to all new single family office applications after 5 July 2023 (otherwise known as the ‘5 July 2023 Conditions’) and will likely impact Singapore's appeal to single family offices.

Under the 5 July 2023 Conditions, S13O fund vehicles must now have a minimum AUM (assets-under-management) of S$20 million in Designated Investments[8] at the point of application and maintained throughout the incentive period. Moreover, family offices under the S13O scheme now require at least one individual who is not a family member of the UBO to be employed by the family office as a family office professional at the point of application and throughout the incentive period. Similarly, S13U fund vehicles must now have a minimum of S$50 million in Designated Investments at the point of application and maintained throughout the incentive period.

There is also no longer a 12-month grace period to meet the minimum conditions to enjoy the tax exemptions on the specified income derived from the Designated Investments. This means single family offices that do not possess adequate resources (or have not pooled together the minimum AUM necessary), nor have the requisite number of family office professionals to meet the minimum requirements of the incentives at the point of application, will be unable to use Singapore as their base.

The new conditions mean that these fund vehicles must first be able to invest the minimum AUM necessary into the Designated Investments approved by MAS from the get-go, before they may explore other investment options. This may work against Singapore’s appeal as a flexible base to allow prospective family offices to access investment opportunities in the broader Asian region. Family offices that are not keen on investing their assets (ie the minimum AUM) in the Designated Investments approved by MAS are likely to be driven away from Singapore as a result.

On the other hand, the minimum local investment requirement has also been replaced with the ‘Minimum Capital Deployment Requirement’ (CDR) and requires that the fund vehicle invests the lower of (i) 10% of its AUM or (ii) S$ 10 million into a restrictive list of options that may further deter investors.

While MAS is aware that these conditions may dampen the growth of SFOs in Singapore, it has broadened the tax incentive coverage to include blended finance structures. Although the concept of blended finance has not been expressly defined by MAS, MAS has suggested that it would accept definitions from internationally recognised institutions, such as Convergence[9], OECD[10], United Nations or the World Economic Forum (WEF).

With the aim to also drive investment towards public causes, MAS has announced that it now also recognises up to double the amount of concessional capital[11] invested in eligible investments for the computation of the CDR, once the investment requirements are met.

As part of MAS’ efforts to tighten the qualification of investment professionals for these single family offices, MAS has also clarified the requirements to be considered a sufficiently qualified investment professional under the new conditions. Apart from the principal who owns and actively runs the family business, prospective investment professionals are expected to be employed primarily as a portfolio manager, research analyst or trader in the family office, and would need to fulfil MAS’ expectations insofar as qualifications and experience are concerned. This is part of MAS’ overarching goals to pool high-quality talent into Singapore as well as ensuring that these single family offices are staffed with professionals who meet MAS’ standards and required expertise in investment management.

To strengthen Singapore’s position as a regional philanthropy hub and to encourage family offices to anchor their charitable operations in Singapore, MAS also introduced the Philanthropy Tax Incentive Scheme for Family Offices (PTIS). To qualify, donors must have a fund under either the S13O or S13U schemes and meet the requisite conditions, such as incremental business spending of S$ 200,000, and will allow qualifying donors in Singapore to claim 100 per cent tax deduction, capped at 40 per cent of the donor’s statutory income for overseas donations made through qualifying local intermediaries. Such changes are also expected to encourage these single family offices to focus on social causes which require compassion, impact, investment and deep engagement in society[12].

 

As Singapore continues to refine its regulatory framework, it is strongly believed that the result of these changes will direct more support to the local economy and the broader financial sector, as well as generate more good quality jobs for locals. The changes are also aimed at selectively attracting individuals with the ability to make more economic impact, and the affinity to be more rooted and committed to Singapore[xiii]. However, given how stringent the latest family office conditions have become, there is clearly a possible risk that these changes may have the opposite effect.

In light of the recent changes, speculation is rife that competitive jurisdictions such as Hong Kong are increasingly seen as strong contenders and rivals to Singapore. The risk of being displaced as a global family office hub will always be there if Singapore does not continue to innovate. To this end, Singapore’s introduction of Variable Capital Companies (VCCs) some years back has given the industry food for thought as to how VCCs may provide UHNWIs[xiv] with various options to manage their wealth through a more efficient structure[xv]. 

In June 2023, DBS launched a multi-family office that leverages the VCC structure to meet growing demand from UNHWIs around the world looking to set up family offices in Singapore. Dubbed the DBS Multi-Family Office Foundry VCC, it will operate as an umbrella VCC with underlying sub-funds[xvi].

Even though the VCC regime is still in its relative infancy, the demand from global UNHWIs to leverage VCCs in Singapore as a unique wealth structuring solution has prompted banks to provide such offerings in the wealth planning space. At present, a VCC can only be managed by a licensed or registered fund manager, and therefore a single family office (being an exempted entity) would not be able to directly manage a VCC. We understand that MAS has been in consultation with the industry on this aspect for some years now, and it may be that single family offices could soon have the ability to be directly involved.

As for whether the VCC will be structurally effective or strategically beneficial to a family office’s investment plans, this remains to be seen. However, the integration of new structures such as the VCC, and other initiatives in the private wealth space, demonstrates the country’s progressiveness in its regulatory regime, and commitment to strengthening its financial infrastructure, allowing Singapore to continue upholding its world-class standards to attract high-quality investors and remain the jurisdiction of choice for family offices.

 

1 As of 2021, there have been over 700 family offices established in Singapore. <https://www.edb.gov.sg/en/our-industries/family-office.html>

2 Formerly known as section 13R and section 13X of the Income Tax Act of Singapore respectively, these schemes were initially created to encourage more asset managers to set up shop here.

3 https://www.mas.gov.sg/news/speeches/2023/mas-annual-report-and-mas-sustainability-report-2022-2023

4 As SFOs do not manage third-party monies, they are not registered with or licensed by MAS given that they are exempted from licensing if they are managing a single family’s assets. MAS therefore does not have hard data on the scale of their operations or how many of these SFOs there really are.

5 <https://www.mas.gov.sg/news/parliamentary-replies/2023/oral-reply-to-parliamentary-question-on-family-offices-and-wealth-inflows>

There is no data since April 2022 as SFOs that have applied for tax incentives since April 2022 have two years from their point of application to meet the local investments requirement that MAS introduced in April 2022. As we are within the first two-year implementation period, data on the volume of assets is not currently available.

6 <https://www.edb.gov.sg/content/dam/edb-en/about-edb/media-releases/news/changes-to-global-investor-programme-will-generate-more-spin-offs-for-the-singapore-economy/Media%20Release%20-%20Changes%20to%20GIP%20Programme.pdf>

7 Designated Investments are as defined in the Income Tax (Exemption of Income of Prescribed Persons Arising from Funds Managed by Fund Manager in Singapore) Regulations 2010.

8 Based on Convergence, blended finance is the use of catalytic capital from public or philanthropic sources to increase private sector investment in sustainable development <https://www.convergence.finance/blended-finance>

9 Based on OECD’s Blended Finance Principles, blended finance is the strategic use of development finance for the mobilisation of additional finance towards the Sustainable Development Goals (SDGs) in developing countries. <https://www.oecd.org/dac/financing-sustainable-development/development-finance-topics/OECD-Blended-Finance-Principles.pdf>

10 Concessional capital refers to financing where the financier accepts a lower rate of return or higher risk than that which the borrower or issuer ordinarily has to offer to financiers seeking commercial risk-adjusted rate of return.

11 <https://www.straitstimes.com/business/s-pore-to-announce-new-incentives-for-family-offices-launches-trade-finance-registry-to-counter-risks>

12 EDB Singapore, 02 March 2023, ‘Changes to Global Investor Programme will generate more spin-offs for the Singapore economy’ <https://www.edb.gov.sg/en/about-edb/media-releases-publications/changes-to-global-investor-programme-will-generate-more-spin-offs-for-the-singapore-economy.html#:~:text=GIP%20CHANGES&text=The%20changes%20will%20take%20effect,business%20operation%20in%20Singapore%3B%20and>

13 Ultra-High-Net-Worth Individuals

14 An earlier article on the VCC by Ow Kim Kit can be found at <“Memorandum on Singapore Variable Capital Companies” |... (ifcreview.com)

15 <https://www.straitstimes.com/business/dbs-launches-world-s-first-multifamily-office-vcc-for-ultra-rich-families-to-manage-their-wealth>